Letter to Entrepreneurs by William Liang

It’s a hard road you’ve chosen. I’m sure you’ve heard it before. However, if you insist, I’ve written a simple cheat sheet for you to constantly remind yourself if you are staying on the path.

Here it goes…

Make something people want – Paul Graham at Y Combinator

You’d be surprised how often people end up “making something I want”. After all, aren’t we all egoists?

Solve a big problem, the bigger the problem the bigger the opportunity – Vinod Khosla

99% of the ideas I’ve heard during my teaching/advising/mentoring starts out with an allegedly cool idea and not a painful problem.

Has someone solved this problem before? If so, can you do a better job? (aka competitive analysis)

The corollary is that if you found someone else’s solution after you’ve identified a problem it is likely not a painful problem for you because you never looked for the solution before.

How many people share this problem?* How much value are you creating by solving this problem? Quickly estimate the value of your solution and see if it’s worth further investigation.

Remember that resizing your market is a balancing act. The bigger the target market the more complex your solution. (Side note: Hong Kong is a very small market in terms of Internet size. If you target only HKG customers you better be offering a lot of value per transaction to make it worthwhile.)

Speaking of value, “no value, no customer”. Value is what makes users come back for more. Be very clear to yourself and others about your value proposition.

So, you think you have a solution that creates value. Can you list the assumptions you are making? Your aim is to use whatever means possible to quickly and cheaply validate your assumptions. How do you do that, you ask. This is the hard part; there is no formula. There are bags of tricks, like A-B test, false doors/buttons/offers, etc. Come ask me if you need help.

Do not achieve failure – Eric Ries

Following a business plan faithfully for an unproven business model will likely take you successfully to a business failure because most business models are not viable.

The entire process should be scientific. You start with a hypothesis (assumption), and design an experiment, a Minimum Viable Product (MVP), which returns data to prove or disprove your hypothesis. Collecting the data is important, and so is listening to your customers. They will both lead to a potential change in your business model. Big changes are called “pivots”.

An MVP is an experiment, nothing more. You should resist any temptation to add features/services/functions willy nilly without data to back up it’s utility. For example, if your assumption is that customers want a 3D view of your product, why not add a button offering it. Of course don’t surprise your customer when he presses this false button. Either tell him it will be coming soon or offer an alternative means. Build the feature only when you have enough interest.

Startup is a “temporary organization designed to search for a repeatable and scalable business model.” – Steve Blank

Picture an ocean of business models (see example below). The vast majority are not viable; ie. value created does not cover the cost of creating it. Your job as an entrepreneur is to navigate this ocean of business models to find land (viable business model).

One last thing. Starting a laundry service is not a scalable startup. Starting a new Internet search is a scalable startup. The more you take advantage of automation the more likely you can scale your value creation with great multiples.